Tag: real estate

By: Kari Michel The U.S. government and mortgage lenders have developed various loan modification programs to help homeowners better manage their mortgage debt so that they can meet their monthly payment obligations. Given these new programs, what is the impact to the consumer’s score? Do consumer scores drop more if they work with their lenders to get their mortgage loan restructured or if they file for bankruptcy? The finding from a study conducted by VantageScore® Solutions* reveals that a delinquency on a mortgage has a greater impact on the consumer’s score than a loan modification. Bankruptcy, short sale, and foreclosure have the greatest impact to a score. A bankruptcy or poor bankruptcy score can negatively impact a consumer for a minimum of seven years with a potential score decrease of 365 points. However, with a loan modification, consumers can rehabilitate their scores to an acceptable risk level within nine months.  This depends on them bringing all their delinquent accounts to current status. Loan modifications have little impact on their consumer credit score and the influence on their score can range from a 20 point decrease to an increase of 30 points. Lenders should proactively seek out a mortgage loan modification before consumers experience severe delinquency in their credit files and credit score trends. The restructured mortgage should provide sufficient cash availability to remain with the consumer.  This ensures that any other delinquent debts can be updated to current status. Whenever possible, bankruptcy should be avoided because it has the greatest consequences for the lender and the consumer. *For more detailed information on this study, Credit Scoring and Mortgage Modifications: What lenders need to know, please click on this link to access an archived file of a recent webinar:  http://register.sourcemediaconferences.com/click/clickReg.cfm?URLID=5258

By: Tracy Bremmer There has been a lot of hype these days about people strategically defaulting on their mortgage loans. In other words, a consumer is underwater on their house and so he/she makes a strategic decision to walk away from it. In these instances, the consumer is current on all of their non-mortgage accounts, but because the value of their home is less than what they owe, they make the decision to default on their mortgage loan. Experian and Oliver Wyman teamed up to really dig into this population and determine these issues: • Does this population really exist? • If so, what are the characteristics of this population, such as assessing credit risk or bankruptcy scores? • How should loan modification strategies be differentiated based on this population? This blog will be one of a three-part series that addresses these questions. Let’s begin with the first question. 1.  Does this population really exist? The quick answer is yes – this population does indeed exist. In fact, in 2008 strategic defaulters represented 18 percent of all mortgage defaults, up 500 percent from 2004. When we conducted our study we found there were varying populations that also existed when it came to mortgage defaults. In fact, we classified mortgage defaulters into five categories: strategic defaulter, cash flow manager, distressed defaulter, no non-real estate trades, and pay-downs. We defined these populations as follows: • Strategic defaulter - Borrowers who are delinquent on their mortgages, even when they can afford the payment, because their loan balance exceeds the value of their home, • Cash flow manager - Borrowers facing delinquency issues with their mortgage because of temporary distress, but continue to make payments on all credit obligations, • Distressed defaulter - Borrowers facing potential affordability issues that go delinquent on their mortgage along with other credit obligations, • No non-real estate trades – Borrowers who are delinquent on their mortgage, however they do not have any other non-mortgage trades to evaluate if they have strategically defaulted or are in distress, • Pay-downs – Borrowers who pay down their mortgage loan. In my next blog, I will address the characteristic differences in behavior between these populations. Specifically, I will evaluate what characteristics make strategic defaulters stand out from the rest and what is unique about the cash flow managers. Source: Experian-Oliver Wyman Market Intelligence Reports; Understanding Strategic Default in Mortgage topical study / webinar. August 2009.